The Australian dollar has come under pressure after the latest set of Gross Domestic Product (GDP) numbers released for the first quarter disappointed the markets. Australian GDP fell to 1.8% over the year down from 2.3% which represents the slowest growth since 2009. The quarterly figure arrived at just 0.4% with weak household spending being cited as the main reason for the drop. The weak data comes at a time when the Reserve Bank of Australia moved quickly this week to cut interest rates.
|Currency Pair||% Change (Month)||Difference on £200,000|
The Australian dollar is receiving mixed signals as both the Reserve Bank of Australia (RBA) and the US Federal Reserve begin to take decisive action on their own monetary policy. The RBA cut interest rates this week for the first time in almost three years by 0.25% to 1.25% following a cooling economy, weaker inflation and rising unemployment down under. Interest rates down under now sit at an all-time low. The RBA have also signalled this will not be the last rate cut this year. Expectation is now for a second interest rate cut at the August meeting which could see the Australian dollar weaken further.
Despite the RBA cut the Australian dollar has made some gains after US Fed Chair Jerome Powell stated he was prepared to cut interest rates in the US. The markets are now pricing in the prospect of two US rate cuts this year which will alter the difference in headline rates between the US and Australia. Any fundamental change will likely see a shift in the strength of the Australian dollar as investors move between the two currencies accordingly.
As the Brexit uncertainty continues almost three years on from the June 2016 referendum the pound is likely to continue see a volatile period ahead against the Australian dollar. Depending on who the next British Prime Minister is and the direction he or she brings to the Brexit process could see a big market reaction for GBP vs AUD. A no deal Brexit or a managed no deal would likely see the pound fall lower against the Australian dollar.
UK Prime Minister Theresa May will officially stand down tomorrow after three years in office. The first round of voting for the next Conservative Prime Minister will take place next Thursday with a second round expected 18th June until there are only two candidates remaining.
Clients with pending requirements would be wise to plan around this important conclusion and consider taking the risk out of the volatile currency markets.
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